Archived entries for revenue

As we noted in February, Facebook recorded an increase in payments revenue in the fourth quarter of 2012; however, the increase in payments revenue was the result of deferred revenue recognition. In fact, when accounting for the $66 million in deferred revenue, Facebook’s payments revenue remained essentially unchanged over the year ago quarter. We concluded that Facebook’s payments business has remained flat for the past five quarters.

However, Facebook’s Q1 2013 earnings shows a slightly different picture for Facebook’s payments business. According to its 10-Q, Facebook earned $213 million in revenue from payments and other fees, a 15% increase from the year ago quarter. According to the company, the uptick in quarterly payments revenue is primarily the result of increased games revenue, and to a lesser extent revenue from Promoted Posts and Gifts.1

Facebook’s payments revenue from games increased by 12%; however, the company admitted that when accounting for deferred revenue recognition in the fourth quarter, the increase in payments revenue over the year ago quarter was closer to 6%. Despite a 37% decline in bookings from Zynga, Facebook’s largest games developer, the company still enjoyed a 60% increase in games-related payments volumes.

At a glace, Facebook appears to have realized an increase in payments revenue in Q4 2012; however, upon closer inspection we can see that payments revenue from the quarter was actually flat (barring a one-time accounting recognition). In fact, Facebook advised investors of this development in its 10-Q filing, where it remarked that an accounting change would recognize deferred revenue in the fourth quarter.

In its October 24 10-Q filing, the company explained that its terms and conditions provide for a 30-day claim period where a customer may dispute a virtual goods transaction. Facebook’s payments revenue deference stems from the company’s admission that it would not be able to reasonably or reliably estimate future refunds or chargebacks arising during the claim period, due to a lack of historical transactional information.1

Facebook’s 8-K shows $256 million in revenue from payments and other fees in the fourth quarter. Adjusting for the $66 million in deferred revenue, we can see that revenue remained essentially unchanged, compared both to the previous quarter and the year ago quarter. Assuming approximately $190 million in payments revenue in the quarter, Facebook saw only a 7% increase over the previous quarter, and a more modest 1% increase over the year-ago quarter.2

In addition to its earnings, Facebook provided details of its regional user base numbers, as well as average revenue per user (ARPU) by region. Predictably, Facebook claims that its highest user growth regions are Asia and rest of world. However, Facebook’s data also demonstrates a disparity between user growth and ARPU in these regions. While user growth continues to rise, outpacing its other regions, revenue in these regions remains low.

Over the past nine quarters, Facebook’s monthly active users in Asia has increased 166% from 96 million to 255 million in the second quarter 2012. Asia region daily active users increased 187% over the past nine quarters, from 45 million to 129 million. Rest of world region shows similar growth trends: monthly active users increased 173% (98 million to 268 million), while daily active users increased 231% (42 million to 139 million).1

While Facebook shows a consistent increase in user base in Asia and rest of world during the last nine quarters, ARPU has grown less consistently. During the second and third quarter 2010, Facebook generated $0.36 per user in Asia. At its height, the company earned $0.56 per user; however, during the first quarter 2012 Facebook earned only $0.53 per user, and during the second quarter 2012, that number increased only slightly to $0.55 per user.

Facebook offers a four-pronged approach to advertising: it delivers to advertisers reach, relevance, social context, and engagement. The majority of Facebook’s revenue is derived from its advertising products; this trend continued in the second quarter 2012.

Facebook generates revenue primarily from advertising products on its desktop website. It leverages its 955 million monthly active users, and allows advertisers to target its user base by age, location, gender, or interests, which are shown either directly or through relationships with advertising agencies. Costs are measured by impressions delivered or the number of clicks by users.

In the second quarter 2012, Facebook reported $922 million in revenue. This represents 84% of Facebook’s total revenue for the quarter, and a 28% increase from the second quarter 2011.1 While Facebook’s revenue is down slightly from the September 2011 quarter, it is perhaps too early to predict advertising revenue growth.

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Continuance, a Facebook analysis blog, explores operational and financial indicators to evaluate Facebook and its stock performance, and evaluates trends in social networking and mobile communications.